Weekly Jobless Claims increased more than expected to 427 thousand last week, maintaining the negative trend in this key series that has taken hold since early April. The 4-week average, which smooths out the series’ inherent week-to-week volatility, dropped by 2750 to 424 thousand. This weak Jobless Claims read will feed into the ongoing concerns about the economy’s growth momentum. Last Friday’s disappointing jobs report made this growth question the key issue for the market.
Claims moved above the important 400 thousand level in April after consistently coming down to the under-400 thousand level in the preceding months. The four-week average had dropped to as low as 389 thousand in mid March before a host of factors forced a trend reversal. Supply chain disruptions from Japan’s earthquake appear to have been the biggest factor on the manufacturing slide, particularly in the auto sector.
The weekly claims data has proved a good predictor of job gains in the economy. A weekly claims level of under 400 thousand has historically been associated with strong job growth. And as we found in the disappointing May non-farm payroll report, a claims level above the 400 thousand level has labor market consequences. We need the jobless claims numbers to fall and stay below that level in the coming weeks to put the labor market recovery back on track.
Across the pond in Europe, the focus today was on the European Central Bank (ECB), which left interest rates unchanged as expected. Please recall that the ECB is already in a tightening mode following the rate hike in April, in response to inflationary pressures in the core markets of Germany and France. The expectation in the market is that despite the continuing problems in the peripheral countries of Greece, Portugal, and Ireland, the ECB will raise rates in July.
In corporate news, Texas Instruments (TXN) lowered its outlook for the current quarter, citing weak demand from Nokia (NOK). We also have National Semiconductor (NSM) report quarterly results after the close today.
This morning’s weak Jobless Claims data adds to the market’s nervousness on the growth question. The market is looking for evidence that the current weakness is temporary and that growth will resume in the second half of the year. We will likely have to endure some pain in the coming days before we reach that point.
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